Why banks are reluctant to finance oil projects

The Managing Director, Intelligent Flow Stations Limited, Babs Oyeneyin, has explained why banks are banks’ reluctant to finance oil and gas projects. Their reluctance is informed by the lack of meaningful structure or business framework to guarantee safety of funds for execution of such projects, he said.

Oyeneyin, who spoke at a forum in Lagos, said that all over the world the oil industry is funded by banks with the aim of generating more money that could be extended to other sectors of the economy including the small and medium enterprises.

He said the Nigerian situation is different because the government has not created meaningful structure that would guarantee banks to provide money for execution of oil and gas projects. Such structures include business plan and rebate for funding specific projects.

The banks need to be properly equipped. He adding “Our banks need to have the right education as to what the oil and gas industry is all about. In the business, you need to bring bank guarantee because the bank guarantee is the field you have. The banks need to do their due diligence and if you have a field that you can estimate its reserves, it is enough for the banks to provide the finance to do the business.”

The international oil companies (IOCs), he said didn’t use their money for projects execution; rather they use the assets they have as guarantee. “Because they have fields make them to be able to borrow from banks to fund the fields,” he explained.

Oyeneyin said marginal fields’ development has not failed but noted that those working are doing so by virtue of personal efforts. He said the banks need not to be blamed so much because the framework is not there to educate them. He urged the government to facilitate the processes to support the banks.

He said the government should not be involved in spending personal money to fund private businesses but should create the policy and partnership. He said for a bank to be able to fund field development, it must have people who would assess the business plan. The business plan includes what to do in the field, resources available, available reserves and how to go about the development as well as engineers who would be able to do the assessment.

“The banks need to do their due diligence to make sure of the plans they have in place to do their business, the cost, the bank independent assessment, which will make it decide to give you money to fund the development. But they don’t have the infrastructure to do that, they don’t have the people, and even when they recruit engineers, they just sit on the counter. It is a cash and carry business that the banks do. They need to grow from that. Nigeria has been in the oil business for a long time. The IOCs are only helping to support of SMEs.

“The banks need to be educated on what their responsibilities are, the government has to provide the inducement for banks to actually see that this is an opportunity for development, and at the same time the banks are not charity organisations, they want to see that there is the right framework for them to be able to support,” he said.